Commercial building still booming
But vacancy rates are edging up
BY PETE SKIBA Florida Weekly Correspondent

FLORIDA WEEKLY PHOTOS Above: workers install windows on the new hotel being built on Colonial Boulevard, just East of I-75

After the housing market tanked, builders continued to put up concrete block for offices and retail shops. However, many sit vacant with for rent signs in the windows.

"Lee County had an overall vacancy rate of 12.4 percent. Overall Collier County posted an 18-percent vacancy rate," said Gary Tasman, of the real estate firm Cushman & Wakefield. "Bonita Springs was hit hard with a 16.4 percent vacancy rate. Downtown Fort Myers has the lowest vacancy rate at about 4.5 percent, the lowest in the region."

Lee County non-owner occupied inventory came in at 10.9 million square feet, while Collier County accounts for about 4.1 million square feet.

Southwest Florida is about 2 ½ years ahead of itself with commercial development, said George Vukobratovich, Welsh Companies Florida Inc. president. Inventory stands at 15 million square feet.

Those were the figures from the first six months of the year. The third quarter figures were not immediately available. Real estate professionals do not expect the numbers will change for the third business quarter.

Left, a heavy machine operator hoists building materials towards the upper floor of an office building being built on Colonial Boulevard, just East of I-75

"There is a growing vacancy in the new products," said Jim Boback, of the Boback Commercial Group at RE/MAX. "A lot of commercial building is because the county increased impact fees."

Commercial Realtor Paul Sands agreed.

"There are a lot of vacancies in commercial buildings and more on the way as new construction comes out of the ground," said Sands of the Sands Commercial Group at VIP Commercial.

Vacancy rates below 10 percent give builders the impetus to build more office space. Building before the increased fees went into effect could have set off the recent commercial building spurt.

Lee County impact fees including fire, road and school impact fees rose to more than $7,000 for each 1,000 square feet for offices in February. Medical buildings, considered to make the highest impact on roads, went to nearly $25,000 for each 1,000 square feet built.

Chart courtesy VIP Commercial

That sent many developers pulling permits and starting building before the new fees could touch them.

"A builder would have to get the permit and begin work within six months to come under the previous fee," said Randal Mercer, a partner in CB Richard Ellis. "Before a 10,000 square foot medical office could pay an impact fee of maybe $75,000. After February it pays near $275,000 in fees."

Those costs could drive up rents on buildings permitted after February. Now it is a bit of a renter's market.

"Class B office space that used to be $17 to $20 a square foot could be much less," Mercer said. "The owners are open to working with renters. There will also be shorter leases available."

Businesses that depended on the growing housing market either went out of business or have reduced staff and office space causing vacancies in already built offices. Title companies, real estate companies and construction companies don't need the newly constructed offices.

FLORIDA WEEKLY PHOTO A worker lays concrete block on the new Lee County Cancer Care Center being built on Colonial Boulevard.

"There will be a slowdown in office construction due to oversupply," said Ryan Leffler, of Leffler & Associates. "Many companies will move to smaller offices and sublet their offices."

The same is true for retail. It could also be at an oversupply, real estate professionals said.

"The smaller retailers could go under," Vukobratovich said. "But the housing and the commercial market will come back. When it does come back it will be a market with demand void of speculators and unqualified buyers."